Crocus case edges toward payment

For the first time since the Crocus Investment Fund ceased trading more than three years ago, unitholders have reason to hope they might receive a portion of their investment back.

The out-of-court settlements reached last week with four defendants for nearly $9 million in the fund’s class action lawsuit — bringing the settlement total to $12 million — has enabled the receiver, Deloitte, to recommend to the court that a partial distribution be made to Crocus’s more than 34,000 unitholders.

In a prepared statement, Deloitte says there are still a number of steps that need to be taken before investors will see their Crocus shares replaced with cash in their RRSP accounts. The ultimate decision rests with a judge, it says.

“The recent events are evidence of progress in attempts for a distribution to occur, however the receiver is still some time away from being able to make the necessary motion,” Deloitte says, adding that a distribution before the fall is possible although not likely.

One potential wrench in the works, the receiver says, is the indemnification claims of Wellington West Capital, the last remaining defendant in the $200-million class action. “This could impede a distribution,” Deloitte says.

But the fact the plaintiffs have capped their claim against Wellington West at $20 million should enable the court application for the interim distribution to be made, Deloitte says.

It’s all good news for Bernie Bellan, the outspoken Crocus shareholder who spearheaded the class action.

“We were not only trying to get money in the form of settlement but also to free up the receiver (to distribute money to unitholders),” he says.

Jay Prober, one of the lawyers representing the plaintiffs, says the class action may yet add more defendants. Two currently on its radar are Fillmore Riley, the Winnipeg-based law firm that provided legal advice to the fund’s board of directors, and Stafford Swain, a consultant who provided valuation services to the fund. Prober says the class action would seek at least $3 million from the two parties.

A settlement with Wellington West is certainly a possibility. Kish Kapoor, president of the Winnipeg-based brokerage, says the firm would certainly entertain the idea.

“The costs to defend a process like this, for both shareholders and defendants, are high. We are incurring costs and we think it’s in the best interests to try to minimize the time, effort and resources in dealing with this complex matter,” he says.

Kapoor says Wellington West did what it was required to do as an agent for Crocus. Extensive reports by both Manitoba’s auditor general and Deloitte failed to uncover any evidence of wrongdoing on the company’s part, he notes.

“We were not a director, we were not an officer, we were not an auditor and we were not a valuator for Crocus,” he says.

The province’s decision to settle has sparked a political furor after the government previously said it didn’t have any exposure in the case.

Colin Lemoine, a spokesman for the minister of finance, says the government made a business decision to settle its dispute with the class action.

“Proving that there was no fault on the part of the government through a long and protracted court case might have cost more than the settlement,” he says.

Hugh McFadyen, leader of the opposition Tories, says the $3 million total sends a message that the government was anxious to extricate itself from the situation to prevent public disclosure of its wrongdoing as the lawsuit progressed.

“You don’t write a cheque on behalf of taxpayers for that much money when you have a strong case. You do that when you have a weak case and you’re looking to get yourself out of it,” he says.

Renée Alexander is a Winnipeg-based freelance journalist.

(03/06/08)